Jan 18, 2014 (LBO) - Sri Lanka's banks and well managed larger non-bank lenders will be encouraged to swallow up to three second tier firms with tax breaks and cheaper financing, a plan released by the banking regulator said.
A presentation by Sri Lanka's Central Bank Governor Nivard Cabraal made to the financial industry has asked identified 19 non-bank lenders called finance companies as 'category A' which are compliant with regulations and has capital of more than a billion rupees and assets of over 8.0 billion rupees.
But 38 others identified as category 'B' fell short of the requirements. Another category 'C' firm was under a court restraint.
Non bank lenders in the same business group will have to submit a merger plan by March 31, and complete it by June 30.
Banks and 'Category A' firms were expected to absorb between 1 to 3 'B' firms, and smaller 'Category B' could also merge among themselves to reach assets of 8 billion rupees and capital of a billion rupees.
Category 'A' firms will be given time until March 31 "to identify partners of their choice" from among 'B' firms, the presentation said.
Matching funds will be given from a liquidity support for 'A' firms and banks to make up for any capital deficiency. Acquisition costs would be made tax deductible as already said in a budget for 2014 by the finance minister.
The tax breaks are now being finalized with the finance ministry and revenue office.
Mergers are expected to be completed by the first half of 2015.
Any category 'B' firms remaining unabsorbed after March 2015 may be considered a "possible threat' to financial system stability.
The Central Bank will then issue directions to such banks or non-bank lenders to merge.
By January 01 core capital of non bank lenders will be have to be increased to 1.5 billion rupees from a billion rupees and by January 18, it will be raised to 1.5 billion rupees.